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Supreme Court upholds ACA tax credits in federal exchanges

In its much-anticipated decision in King v. Burwell, the Supreme Court has upheld the availability of the ACA's premium assistance tax credits for individuals purchasing insurance through a federally facilitated exchange, including the exchanges maintained for residents of Kansas and Missouri.

Background. This case addressed a seemingly simple proposition: Whether the phrase "an Exchange established by the State" meant only exchanges actually established and operated by one of the 50 states or the District of Columbia or whether it also included exchanges operated by the federal government in states that declined to establish their own exchanges. If the language meant only exchanges actually established and operated by one of the 50 states or the District of Columbia, the ACA's premium assistance tax credits would not be available to the residents of the 34 states that did not establish their own exchanges. This would have a ripple effect under the ACA by potentially limiting the impact of the individual mandate and the employer mandate and impairing the operation of the individual insurance market.

The Court's Analysis. The Supreme Court concluded that the statutory language (“an Exchange established by the State”) was ambiguous and that its meaning should be interpreted in the context of the broader structure of the ACA. It then held that the overall statutory scheme of the ACA compelled the conclusion that the tax credits should be available to individuals purchasing coverage through federally facilitated exchanges. Otherwise the individual insurance market would be destabilized in states with federally facilitated exchanges, likely leading to a "death spiral" - a situation in which only the unhealthiest individuals would purchase insurance, thereby driving up costs and ultimately causing insurers to leave the market. The Court summarized its decision as follows:

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. [The tax credit rules] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”

The Impact of the Decision. This case was being closely watched due to its potential impact on many aspects of the ACA. Large employers in particular saw it as potentially providing relief from the ACA's employer mandate. Without access to tax credits in many states, large employers might have seen reduced exposure to penalties for failure to offer affordable insurance coverage to full-time employees.

But the Court's decision maintains the status quo. Tax credits will continue to be available without interruption. For large employers, this means they continue to face penalty exposure if full-time employees are able to obtain exchange-based coverage subsidized by tax credits. For individuals, this means they continue to face penalty exposure if they fail to maintain minimum essential coverage. And for the insurance market, there will continue to be subsidies available to support the purchase of individual insurance by a broad range of individuals.

In short, the ACA has survived yet another significant challenge, so it continues to be business as usual for those impacted by its mandates.

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